6. World trade. Regulation in foreign trade. Types of credit negotiations. (ebb Unit X; Unit XIII a)

As we speak about situation with world trade we must mention that Saudi Arabia was the biggest single supplier of money to Western banking system. Bank of London and Manchester had a quarter of a billion of Saudi Arabia funds deposited with them on a ninety-day basis in pound sterling. Sterling was one of the riskiest currencies on earth, deposits in British banks normally provided a high rate of return, by international standards. The going rate at that time for three months was 16 percent. The Saudis were getting 14 percent. Of course, such situation was not profitable for Saudis and that is why Bill Hitchcock was not agree with it and tried to change that situation by means of telephone conversation with Mr. Gates from Bank of London and Manchester. But Mr. Gates did not want to change anything, because he was sure that Saudis (which had large deposits of oil) could blackmail them on oil but cold not do the same on money. So after that Bill Hitchcock asked him to transfer two hundred and fifty million to Saudis account at Chase Manhattan and promised not to provide any renewals on that and any other deposits when they came due. Also after several telephone calls to largest Bancs in other countries – business partners of Saudis: Barclays, National Westminster, Bank of Hong Kong and Shanghai he had drained almost a billion pounds sterling from the British banking system. So, according to this information we can make a conclusion that Saudis had great real power in the world market and in the world trade as it had strong influence on financial capitals of the world through the means of large deposits of money.

Of course, world trade requires involving of great amounts of money with the help of large number of bancs and their branch network abroad (where law and regulations permit). For financing of world trade bancs set up formal and informal relationships with each other through an extensive system of correspondent banking. So major banks in different countries of the world establish extensive international operations by establishing correspondent relations with each other.

Of course, in each country of the world there are special requirements for carrying out of foreign trade operations and also there are some international laws and regulations which monitor world trade of different countries.

As about position of Italy in world trade, we can say that ever since World War the second that country and its economy had resembled a man tied to a waterwheel, to say it another words, Italy always had problems with money but borrowed it and then everything was good until another lack of money. That is why Saudis, who had their own financial interest connected with Italy, could help it in that difficult financial situation. Bill Hitchcock wanted to provide to Italy short-term loan, say, a couple of billion perhaps for 6 months, with an option to renew for another 6 months, some payable now, the rest on standby. So, according to these facts, we can divided credit negotiations into short-term and long-term, payable at sight or by parts, with an option of renew and without it and, of course, international credits can carry different maturities.

Bill Hitchcock telephoned to Henri Duvillard, chairman of the Banque Nationale de Paris and asked for help in providing credit to Italy, but Henri Duvillard refused. Dr. Reichenberger was agree to provide one more big loan, but he required collateral and Italians had nothing to offer. So, according to such information, we can say that in world trade in credit negotiations collateral plays very important role, but still there are credit negotiations with or without collateral, and also, of course, the percent rate of credit is signifisant factor too.

7. International monetary relations. Markets for foreign exchange. Its location and operation. (EBB Unit XIV + Corbett Unit 3)

The foreign exchange markets are among the largest markets in the world, with trading each day in excess of $200 billion. It’s essentially an over the country market, with no central trading location and no set hours of trading. Prices and other terms of trade are determined by negotiation over the telephone or by wire, satellite or telex. Foreign exchange market is informal in its operations, there are no special requirements for the participants.

The largest money center banks headquartered in New York, London, Tokyo and other financial capitals of the world not only maintain large inventories of key foreign currencies, but trade currencies with other simply through an exchange of deposits.

The central institutions in modern foreign exchange markets are commercial banks with their foreign exchange departments. They routinely keep working balances of foreign currencies with major banks abroad. Transactions affecting a bank’s working currency balance (buying foreign currency, selling of domestic currency to foreign banks, purchase of financial documents, such as bills of exchange) are carried out by specialized traders with the aid of telephones, video screens and teletypes equipment to keep them in constant touch with other exchange dealers. Foreign exchange dealing is the exchange of the currency of one country for the currency of another.

The price of foreign currencies expressed in terms of other rate. There are today 3 markets for foreign exchanges: currencies are called foreign exchange: (1) the spot market, which deals in currency for immediate delivery; (2) the forward market, which involves the future delivery of foreign delivery; and (3) currency futures market, which deals in contracts to hedge against future changes in foreign exchange rates.

The basic idea of foreign exchange dealing is making profit on selling and buying currencies. Dealers and brokers usually quote not one, but two exchange rates for each pair of currencies: a bid price and an asked (sell) price. The bid-asked spread constitutes the dealer’s profit, though that spread is normally very small.

The problem of fluctuating currency values is very serious if payment must be made in future.

Settlement for the spot transaction is usually within one or two business days, in contract, a forward contract is an agreement to deliver a specified amount at a set price on some future date within 1, 2, 3, 6 or 12 months.

There are several different ways of measuring and quoting forward exchange rate. One is known as the outright rate. Another popular method is to express the forward rate as a premium or discount from the spot rate, known as the swap rate. Forward exchange rates may also be expressed in terms of annualized percentage rate above or below the current spot price.